Gold is a Faith-Based Currency
Further entertainment in the ever-popular gold market comes to us this week via the Steadhand Blog, which quotes Howard Marks saying
“There’s little intrinsic to gold that enables it to serve as a store of value and a hedge against inflation. Gold serves those purposes only because people impute to it the ability to do so.”
This is right on and neatly sums up what everyone needs to know about the value of investing in gold. Anyone who holds gold in case society collapses and hopes to use it to trade for other things is putting their faith in the idea that others will want to take gold instead of things like food or tools that they can actually use to survive.
And for anyone who hopes for protection from lesser disasters such as hyperinflation, it’s just a trade of one faith-based currency for another. The fact that gold was (in real terms) well above current levels over 20 years ago should be sufficient proof of that.
I have not yet heard of any paper currency going through “hyper-deflation” and quickly rising in value like gold has in the past (and too many speculative investments to count) – although I’m sure it would be interesting to watch 🙂 Can anyone imagine a world where the US dollar is worth 5x as much a year from now?
Another interesting note in the quotes from Marks is that only a very small amount of gold is actually used in making things every year – in other words its practical uses aren’t big enough to influence the price much. That further adds to the reasons that gold does not interest me personally as an investment.